What Is the 910-Day Cramdown Rule in Chapter 13 Bankruptcy?

By Cara O'Neill, Attorney
If you’ve paid on a car loan for more than two and a half years, you might be able to pay less than what you owe in a Chapter 13 bankruptcy.

Bankruptcy law has a soft spot for people who’ve been unfortunate enough to have paid on a car loan for a significant amount of time. If you’ve been paying on your vehicle for years and still owe more than what it’s worth, you might be able to “cramdown” the loan—pay the market value of the vehicle instead of your entire balance—in a Chapter 13 bankruptcy. Not only will you be able to keep the car, but you’ll get a break on the amount that you’ll have to pay back.

Keeping Your Car in Bankruptcy

When you took out your car loan, you agreed to put up the car as collateral to secure the debt. As a result, if you fall behind on your payment, the lender gets to repossess (take back) the vehicle. This rule doesn’t change just because you file for bankruptcy, despite the common, yet erroneous belief that you can keep your car without paying for it in bankruptcy (it’s not true).

However, a Chapter 13 bankruptcy can help you keep your vehicle if you fall behind. You’ll have to continue making your monthly payments while catching up on the past due amount over three to five years (the length of your repayment plan).

(Learn more by reading Secured Claims in Chapter 13 Bankruptcy: Can I Catch Up on My House or Car Payment?)

Bankruptcy’s “Cramdown” Rule

If you’ve paid on your loan for more than 910 days before filing for bankruptcy and the car isn’t worth what you owe, you can take advantage of another benefit of bankruptcy—the cramdown rule. Instead of paying the outstanding balance, you’ll repay the market value of the car only. In other words, the lender will only get what the car is worth.

Example. Over two and a half years after buying your car, you file for Chapter 13 bankruptcy. When you file, you owe $15,000, but the car is only worth $7,500. Instead of paying off the entire balance in your repayment plan, you’ll pay the actual value of $7,500, or half of what you owe.

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